A new U.K. law aimed at ending human trafficking and forced labor will likely require increased global supply chain oversight

The United Kingdom recently followed California’s lead and enacted a law requiring covered companies to publicly disclose the specific measures they take to ensure slavery and human trafficking do not occur within their businesses and supply chains. Modeled after the California Transparency and Supply Chains Act of 2010, the newly enacted U.K. Modern Slavery Act of 2015 is on its face a disclosure requirement. However, the clear intent of these laws is to encourage companies to go further and engage in specific actions to combat slavery and human trafficking.

The U.K. Modern Slavery Act of 2015

The U.K. Modern Slavery Act of 2015 broadly addresses the issue of human trafficking and slavery by, among other things, increasing criminal penalties for such acts, increasing the number of law enforcement assigned to these crimes, and creating a new government position in the U.K.—the Anti-Slavery Commissioner. Perhaps the most far-reaching provision of the law, and certainly the most relevant for businesses, is the section which requires that any company that “supplies goods and services” and “carries on a business, or part of a business, in any part of the U.K.” publically disclose the steps, if any, the company takes to ensure slavery and human trafficking are not taking place in any of its supply chains or in any part of its own business.

Comparison to the California Transparency and Supply Chains Act of 2010

Companies already subject to the California Transparency and Supply Chains Act will notice several similarities in the new U.K. Act. For example, the U.K. Act requires covered businesses to publish the disclosure prominently on their website, and the penalties under the U.K. law are similar to those under the California law. Also, like the California law, the U.K Act provides a list of subjects for the disclosure to cover. Unlike the California law, however, this list of topics is suggested rather than required.

The U.K. Act differs from the California law in some other notable ways:

The California law applies only to retailers and manufacturers doing business in California. The U.K. law applies more broadly to companies that “supply goods or services” and “carry on a business, or part of a business in the U.K.”

The California law has a $100M dollar worldwide receipt threshold to be a covered employer, whereas the U.K. Act has left the threshold number open and stated the law will apply to companies that “have a total turnover [or revenue] of not less than an amount prescribed by regulations made by the Secretary of State.” The Secretary of State regulations are expected later this year, and the threshold annual revenue number is expected to fall somewhere between $32M and $1B.

The U.K. law requires a corporation’s board of directors, or a designated member or general partner of a partnership, to sign the statement.

Effects of the U.K. and California laws

We have certainly seen increased attention to issues of social corporate responsibility in recent years. It has become quite common for board members and shareholders to introduce proposals that require a company to take on additional “social good” responsibilities. The California and U.K. laws go one step further and legally obligate companies to publically disclose their efforts to do social good in the area of human trafficking. While a disclosure stating that the company does nothing to prevent such practices is legally compliant under both laws, such a disclosure can leave a company susceptible to negative publicity not only from the company’s own customers who traffic the company website, but also from human rights organizations and watch dog groups created specifically to monitor such disclosures. Thus, for most covered companies, actually taking steps to prevent such practices is the desired and practical approach.

However, companies that disclose the affirmative steps they are already taking or the steps they choose to take in response to these laws face new challenges in ensuring these seemingly simple statements stay accurate and up to date, especially in organizations that depend on flexibility in their supply chain and vendor selection process. Increased due diligence and monitoring have their own costs. Frequent changes to services and product lines that are commonplace in today’s business environment can also become more complicated.

On the other hand, disclosure laws encourage covered companies to regularly audit and engage with their vendors and suppliers. These interactions can help to uncover other potential supply chain issues in need of overhaul. Organizations with policies and procedures in place to eliminate the risk of forced labor within the supply chain, moreover, can benefit from increased brand recognition, positive marketing and a better social reputation as a result of the disclosures.

What to do now

The law is not expected to go into effect until sometime during the fall of 2015. Now is an appropriate time for businesses to determine if they are likely to be covered by the U.K. Act. If so, businesses should investigate their internal policies and procedures to determine which polices, if any, already address reducing the risk of forced labor and human trafficking within the organization and its supply chain. And companies can look for other policies, and procedures that can be easily amended to address these risks.

Companies already compliant with the California law will likely need to make only small changes to comply with the U.K. Act. Corporations, for example, may simply need to have their California compliant disclosure statement approved by the board and signed by a director to come into compliance with the U.K. Act. For companies not covered by the California law, or not yet in compliance, the process to come into compliance with the U.K. Act can still be relatively straight forward, including by providing an appropriate website notice.

A number of tools exist for companies to take affirmative steps to stop human trafficking. Compliance departments can include the topic in existing risk assessment audits, and internal codes of conduct and accountability standards can be amended to identify the need to eliminate risks of forced labor. For outside business partners, organizations may want to amend contract language and request or require that suppliers and vendors abide by the company’s code of conduct. Finally, training of all individuals with responsibility in the supply chain, both inside and outside of the business, can be a key component in mitigating the risk for human trafficking.

The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.